Travel Hacking 101
February 07, 2020
You may know some people who go on vacation a few times a year. And by that I do not mean camping in the neighbouring state.
Usually these people travel to the exotic destinations, staying in the luxurious hotels, flying business class and all.. Last time you checked, they did not make more money than you do. Neither have they just won a lottery.
And you ask yourself, rightfully so, how can they afford it all? You can’t possibly imagine being able to travel multiple times a year on your current budget. Not if you have other goals in life, like saving or investing.
However, don’t you worry, I’ve got you covered. You took your first step already by doing your research online. The curious mind is an asset, so let me help you a little in uncovering their secret i.e. travel miles and points.
I know you might have been told as a teenager that the credit is evil, and so you should avoid it at all cost. That’s the old money advise. Not relevant in today’s world anymore.
Having credit card doesn’t equal being in debt. If you’re smart about it, you can reap great benefits from it and all you need to remember to do once a month is to pay it off in full every month, and use it just as if you were using your debit card, but with some additional benefits.
In other words don’t pay the credit card provider, make them pay you! But how?
Let’s start off with some useful vocabulary:
💥 Mile is what you collect as a frequent flier with a specific airline. As an example, if you usually fly with British Airways then you might have heard about their frequent flier program. In order to be rewarded the miles for every trip you take, you need to sign up to that program. You then are assigned a unique id that you always provide when booking your flights (whether it is directly with BA or a third party). These miles add up and if you fly a lot (for example for work), one day you will have enough miles to pay off a round trip or two. Additionally, you can also exchange points (see below) to miles and by doing so, collect them whilst going about your usual life (shopping, dining at a restaurant etc etc)
💥 Points is what you collect staying at a specific hotel, using rental cars, or again just paying with the chosen credit card for anything really (gas stations, shops, restaurants). In order to start collecting these points, you need to get the credit card first, and not just any credit card. All your rewards and the end effect of how much you will be able to save on your next trip depends on which credit card you pick.
💥 The exchange ratio your credit card provider might be in a specific partnership with a hotel chain or an airline and for each point on your credit card, it will give you 1.5-3 times as many points at that partner’s offering. Say you collected 50,000 points on your credit card through the sign up bonus (more on that later) and also your regular lifetime spendings. You also have plans to go on vacation in a few months. What you need to do a couple of months in advance is to check who are the partners of your credit card provider. You may find out as an example that Radisson Blue offers 3 points for each point you have got collected on your card, so that gives 150,000 points altogether. That will give you a few nights at the hotel for free (of course it depends on the location how many free nights you will get). You could use these points to pay off your flight too or buy an upgrade or food on the plane, but you may find out that the exchange rate is only 1:1. And in this case maybe it is more money-wise to use the points to pay for your hotel stay instead.
💥Paying off in full means that every month your credit card provider will send you a statement (online or by post) with the summary of how much you owe them (i.e. all your spending). They will give you an option to either pay back a minimum amount, full credit, or spending up to date.
You can’t allow yourself to ever choose option one. I usually go with option two, pay what I owe in full aka statement balance. If you ever choose to pay off the minimum amount only, or miss your payment, they will charge you interest on the unpaid amount and it will affect your credit score quite badly. So it will really defy the whole purpose behind getting the credit card in the first place!
Now you know the vocabulary and the secret behind all that free travel! You might be surprised that the secret is such a common, everyday routine.
You might have already been using your bank’s credit card and so you understand all these concepts well. However, what might be new to you is all these benefits. Where do they come from? Your bank only lets you use their credit card for free the whole year with a low interest rate if you miss the payment. You’d thought that was generous already. If that is the case, you are missing out! If you have been using the credit card for a few years, then you probably already have a good credit score. And so you are able to apply for a good credit card. Not every credit card is created equal though and you should research and pick one that suits your needs most.
Maybe low cost travel is not your goal at all and you’d rather receive some of the money back that you spend shopping. Whatever your goal, there’s probably a card for it. In my next post, I will give you more insight into choosing a good credit card as well as my top credit card picks (for the USA and UK). Although the providers vary between countries, the general principles are the same.
Hopefully, I managed to convince you to use the credit wisely to your advantage and as a result to save you some more money. And if you learnt something new and found this content useful, stayed tuned for more!